The Great Giant Corp. has a management contract with its newly hired president.

ID: 2708410 • Letter: T

Question

The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,000,000 be paid to the president upon the completion of her first 8 years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 7 percent on these funds. How much must the company set aside each year for this purpose?

$2,436,694.06 $1,931,435.03 $2,368,832.13 $1,750,000.00 $2,363,593.24

Explanation / Answer

Hi,

Please find the answer as follows:

Nper = 8

Rate = 7%

FV = 25000000

PV = 0

PMT = ?

Amount to be set Aside = PMT(Rate,NPer,PV,FV) = PMT(7%,8,0,25000000) = 2436694.06

Option A is correct.

Thanks.

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The Great Giant Corp. has a management contract with its newly hired president.

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The Great Giant Corp. has a management contract with its newly hired president.

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